The role of the asset manager scrutinised by regulators

By Madhvi Mavadiya | 23 November 2015

Due to the concern surrounding the role of the asset manager and how they operate, UK regulators are studying how costs are controlled and how retail and wholesale customers are served.

The Financial Conduct Authority are focused on figuring out if clients are getting their money’s worth after members of the Investment Association removed their head, Daniel Godfrey, after he questioned why the fees were so opaque, according to the Financial Times.

Godfrey said that these costs are unclear. “I’m not sure costs and charges are actually designed to confuse the consumer, but the effect of a very complicated costs and charging structure does confuse,” Godfrey told the FT.

Earlier this year, the FCA raised concerns about prevention of insider trading and market abuse and then decided to examine how well this was working in the UK. “The UK is a world leader in asset management. Our market study aims to ensure that both retail and institutional investors can get value for money when purchasing these services,” Christopher Woolard, the FCA’s director of strategy and competition.

Although there has been no antitrust laws breach, market studies can encourage investigations, which could lead to the FCA giving a fine to a company for as much as 30% of its global turnover.

Alongside this, the FT reports that some believe that consultants occasionally do not respond on time to market trends such as passive investing and the use of smart beta, but others believe that consultants offer an independent way of judging funds and fund managers.

The Investment Association agree that it is essential that the whole investment chain functions well for its clients. “We welcome the FCA’s decision, alongside its core focus on investment managers, to also consider the role of distributors and investment consultants, reflecting their critical role in delivering the best outcomes for our clients.”

The FT reported that the FCA intend on publishing interim findings in the summer and the final report in 2017.

The Bank of England also released findings on the 2008 collapse of one of the UK’s largest banks, HBOS, which was due to regulators failed to do their job properly, according to the FT. The report, commissioned by Andrew Green QC, was in favour of publishing the names of the culprits, but the regulators in question demanded pseudonyms.  

Regulators do not live in fear of their bonuses being taken away but they do face career risk. Any time a supervisor does anything or takes a decision, they are taking a small risk with a big downside. So they try to avoid taking decisions. When toughness is popular, as it is now, this means relatively minor offences can attract condign punishment. But we need regulators prepared to go against the herd and stand up for themselves when times are good and banks are strongest. Then, toughness is the unpopular course,” the FT reported. 

 

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